Example. Foreign banks; bad debt reserves. FC is a foreign corporation that qualifies as a bank under section 585(a)(2)(B) (without regard to the second sentence thereof), but is not a large bank as defined in section 585(c)(2). FC conducts business through a branch, B, in the United States. Among B's U.S. assets are a portfolio of loans with an adjusted basis of $500. FC accounts for its bad debts for U.S. federal income tax purposes under the reserve method, and B maintains a deductible reserve for bad debts of $50. Under paragraph (b)(2)(iii) of this section, the total value of FC's portfolio of loans is $450 ($500-$50).
Value | ||
Asset 1 | $2,000 | |
Asset 2 | 2,500 | |
Asset 3 | 5,500 | |
Amount | Interest Expense | |
Liability 1 | $800 | 56 |
Liability 2 | 3,200 | 256 |
Capital | 6,000 | 0 |
Average value | |
U.S. Dollar Assets | $20,000 |
U Assets | U 5,000 |
26 C.F.R. §1.882-5